10-QPeriod: Q2 FY2019

Parker-Hannifin Corp Quarterly Report for Q2 Ended Dec 31, 2018

Filed February 7, 2019For Securities:PH

Summary

Parker-Hannifin Corporation (PH) reported solid financial results for the second quarter and the first six months of fiscal year 2019, ending December 31, 2018. Net sales increased year-over-year, driven by growth in both the Diversified Industrial and Aerospace Systems segments. The company demonstrated improved profitability with a higher gross profit margin and net income, reflecting successful cost management initiatives and strong performance in its Aerospace Systems segment. Key financial highlights include a significant increase in diluted earnings per share, robust operating cash flow generation, and a healthy backlog that provides visibility for future revenue. While facing some headwinds from currency fluctuations and certain market slowdowns, the company's strategic focus on efficiency, innovation, and customer service appears to be yielding positive results. Investors can note the company's continued commitment to shareholder returns through share repurchases and dividends, alongside strategic investments for future growth.

Financial Highlights

56 data points
Beta

Revenue

$3.47B

25.0% Gross Margin

Net Income

$311.74M

9.0% Net Margin

EPS (Diluted)

$2.36

Total Assets

$15.31B

Cash & Equivalents

$1.05B

Free Cash Flow

$329.33M

Financial Statements
Beta
Revenue$3.47B
Cost of Revenue$2.60B
Gross Profit$869.71M
SG&A Expenses$397.26M
Operating Income$504.43M
Interest Expense$47.52M
Net Income$311.74M
EPS (Basic)$2.39
EPS (Diluted)$2.36
Shares Outstanding (Basic)130.36M
Shares Outstanding (Diluted)132.31M

Key Highlights

  • 1Net sales increased by approximately 2.9% for the three months ended December 31, 2018, compared to the prior year, reaching $3,472.0 million. For the six-month period, net sales grew by approximately 3.1% to $6,951.3 million.
  • 2Diluted earnings per share (EPS) saw a substantial increase. For the three months ended December 31, 2018, diluted EPS was $2.36, up from $0.41 in the prior year. For the six-month period, diluted EPS was $5.15, compared to $2.51 in the prior year.
  • 3Gross profit margin improved to 25.0% for the quarter and 25.2% for the six months, compared to 23.9% and 24.5% respectively in the prior year, indicating better cost control and pricing power.
  • 4The Aerospace Systems segment demonstrated strong performance with a significant increase in both net sales and operating margin, driven by higher aftermarket and OEM volume.
  • 5Operating cash flow for the six months ended December 31, 2018, was $541.0 million, an increase from $456.8 million in the comparable prior-year period.
  • 6The company repurchased approximately $550 million of its common stock in the first six months of fiscal 2019, demonstrating a commitment to returning capital to shareholders.

Frequently Asked Questions

Revenue growth was primarily driven by higher sales in the Diversified Industrial North American businesses and the Aerospace Systems Segment. The company experienced increased demand from distributors and end-users in various markets, although partially offset by lower demand in some sectors like semiconductor and oil & gas.

Profitability has improved significantly. Gross profit margin increased due to higher margins in the Aerospace Systems Segment and better cost management. Net income and diluted earnings per share saw substantial year-over-year growth, reflecting operational efficiencies and favorable segment performance.

The company's outlook appears positive, supported by a growing backlog and strategic initiatives focused on profitable growth and operational efficiency. While global economic conditions and currency fluctuations pose risks, the company anticipates continued growth in key segments and expects its fiscal 2019 effective tax rate to be approximately 23.5 percent.

Parker-Hannifin maintains a strong financial position, with solid operating cash flow and a healthy backlog. The company continues to engage in share repurchases and manages its debt effectively. It also has a significant amount of cash held by foreign subsidiaries, with a strategy to selectively repatriate earnings now possible due to the Tax Cuts and Jobs Act.